Preserving Multifamily Rental Housing

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					Introduction ....................................................................................................................................... 1

Chapter 1:         Mortgage-Insurance Programs

     New York City Residential Mortgage Insurance Corporation Housing Insurance Fund ........................ 5
     State of New York Mortgage Agency Mortgage Insurance Fund .......................................................... 7

Chapter 2:         Secondary-Market Programs

     Fannie Mae 5-50 Streamlined Mortgage ............................................................................................. 9
     The Community Development Trust.................................................................................................. 10

Chapter 3: Subsidy Programs

     New Jersey Neighborhood Preservation Balanced Housing Program ................................................. 13
     New York City Participation Loan Program ........................................................................................ 15
     New York City 8-A Loan Program ..................................................................................................... 17
     Tax-Increment Financing Neighborhood Improvement Program, Chicago ....................................... 19
     U.S. Department of Housing and Urban Development Section 312 Rehabilitation Loan Program ...... 22

Chapter 4:         Technical-Assistance Programs

    Community Investment Corporation Property Management Training Program, Chicago ................... 23
    Consortium for Housing and Asset Management .............................................................................. 25
    Housing and Community Development Network of New Jersey Asset-Management Workshops . ...... 26
    Neighborhood Reinvestment Corporation NeighborWorks® Multifamily Initiative ............................. 28

Chapter 5:         Tax-Abatement Programs

     California Property-Tax Exemption .................................................................................................. 31
     New York City J-51 Program ............................................................................................................. 33
Background                                    sions in order to analyze obstacles to pro-   posed New Jersey tax-credit legislation.
                                              viding credit and to explore public-pri-      Justin Peyser, vice president of the New
In 1998, a group of multifamily-property      vate partnerships that make credit more       Jersey office of the Community Preser-
owners, government representatives, and       widely available.                             vation Corporation (CPC), also shared
lenders in New Jersey began meeting                                                         CPC’s experience in financing multifam-
because they shared a common concern          Three focus groups held in June and July      ily properties in New Jersey and New
about the precarious financial situation      1999 analyzed the characteristics of fi-      York.
of many smaller multifamily properties,       nancing available to small multifamily-
typically those with five to 20 units, in     property owners. The groups studied the       This research report has been prepared
the Garden State. Many of these prop-         impact of proposed debt and/or equity         to inform the Multifamily Housing Pres-
erties are located in low- and moderate-      remedies on the owners and correspond-        ervation Committee about some success-
income (LMI) census tracts. The 1990          ing public costs.                             ful multifamily-assistance programs in
census reported some 212,441 units in                                                       different parts of the country and to
buildings of five or more units in LMI        In February 2000, the Federal Reserve         stimulate the committee’s thinking about
tracts in New Jersey. The multi-sector        Banks of New York and Philadelphia re-        possible solutions to the financing and
group felt strongly that it was possible to   leased a report, Preserving Multifamily       other needs identified in the February
preserve units that, without intervention,    Rental Housing: Improving Financing           2000 report.
would deteriorate and become vacant           Options in New Jersey. Highlights from
within a few years.                           the report are presented later in this sec-   Obstacles to
                                              tion.                                         Multifamily Financing
The group, the Multifamily Housing Pres-
ervation Committee, has a two-part pur-       In June 2000, the Multifamily Housing         A range of obstacles related to cash flow
pose: to explore obstacles to financing       Preservation Committee was recon-             as well as lending and government poli-
multifamily properties and to focus at-       vened at Fannie Mae’s partnership of-         cies impede the upgrading or refinanc-
tention on the potential impact of a pres-    fice in Newark, NJ. About 30 attendees        ing of properties of five to 20 units in
ervation program for these properties in      heard a presentation by James P. Angley,      New Jersey, as explained in the Febru-
New Jersey.                                   senior vice president of the State of New     ary 2000 report.
                                              York Mortgage Agency (SONYMA), on
The committee includes community af-          the criteria and performance of loans         Factors that have an important impact
fairs representatives from the Federal        made by SONYMA’s Mortgage Insur-              on the cash flow of these properties in-
Reserve Banks of New York and Phila-          ance Fund. In addition, Tim Touhey, di-       clude:
delphia. The Federal Reserve System           rector of Fannie Mae’s New Jersey part-       • Deferred maintenance —
has a broad interest in the efficient func-   nership office, discussed Fannie Mae’s          maintenance has often been deferred
tioning of markets. As part of their com-     5-50 Streamlined Mortgage product,              in older multifamily properties, result-
munity-reinvestment activities, Federal       while a representative of the Local Ini-        ing in major rehabilitation costs that
Reserve community affairs staff mem-          tiatives Support Corporation’s New Jer-         often exceed the properties’ post-re-
bers often facilitate multi-sector discus-    sey Multi-City Program discussed pro-           habilitation value;

Preserving Multifamily Rental Housing                                                                                               1
• Thin operating margins — rental                The report also outlined a number of lend-    Lending policy recommendations
   income barely covers operating ex-            ing policies that have a significant ad-      included:
   penses and may not be sufficient to           verse impact on the ability of property       • Standardized fixed-rate financing —
   cover additional debt needed for re-          owners to obtain loans. These policies          Owners need dependable market-rate
   habilitation;                                 include:                                        financing that includes 30-year self-
                                                                                                 amortizing loans, loan-to-value ratios
• Rent controls — rent-control ordi-             • The difficulty of delivering smaller          of 80 percent or higher, and reduced
   nances restrict owners’ ability to raise        amounts of credit to inexperienced            loan-documentation costs.
   rents to a level that covers operating          borrowers — In multifamily as well
   expenses and rehabilitation costs; and          as in many other types of loans, lend-      • Mortgage insurance — The availabil-
                                                   ers often concentrate their efforts on        ity of this credit enhancement for prop-
• High real estate taxes — the tax                 larger loans to experienced borrow-           erties of five to 20 units would be at-
  burden makes it difficult for property           ers. Owners of five- to 20-unit prop-         tractive to lenders.
   owners to pay debt service and other            erties typically are nonprofessional
   operating expenses.                             real estate borrowers who are inex-         • A more accessible secondary market
                                                   perienced with the financing process.         — This would provide lenders with
The report highlighted a series of gov-            When credit has been made available,          liquidity and lead to a larger volume
ernment policies that have a negative              it is on terms that are difficult for the     of lending for this segment of the
effect on the financial viability of multi-        properties to sustain. For example,           market.
family properties and that contribute to           loans typically have 20-year amorti-
the difficulty of obtaining financing.             zation periods and five-year terms re-      • Technical assistance — This is a ma-
These include:                                     quiring an expensive refinance every           jor need for owners of five- to 20-
                                                   fifth year. Closing costs also have           unit properties. Owners need educa-
• No significant, dedicated source of              been prohibitive.                             tion on best practices in property man-
  subsidy funds was available at the                                                             agement and the process of obtaining
   time of the report to offset rehabilita-      • Lack of a secondary market for mul-           financing.
   tion costs or provide an incentive to           tifamily properties of five to 20 units
   undertake rehabilitation.                       — A secondary market for these prop-        Government policy recommenda-
                                                   erties is virtually nonexistent.            tions included:
• Property owners need relief from                                                             • A new dedicated equity or subsidy
  high real estate taxes.                        Recommendations                                 source targeted to properties of five
                                                 From the February                               to 20 units in low- and moderate-in-
• Municipal rent controls constrict the          2000 Report                                     come neighborhoods without income
   ability of owners to raise rents to a level                                                   restrictions on individual units. The
   that covers operating expenses and re-        The report concluded with recommen-             new equity or subsidy source could
   habilitation costs. As a result, owners       dations for needed changes in lending           consist of low-interest government
   do not have an incentive to make signifi-     and government policies.                        loans combined with market-rate fi-
   cant capital improvements.                                                                    nancing, or it could consist of an eq-
                                                                                                 uity pool that would make equity in-

  2                                                                                                Preserving Multifamily Rental Housing
  vestments in properties of five to 20      In response to lending policy recommen-      (CDT) has begun a secondary-market
  units. These proposals would greatly       dations for providing mortgage insur-        program and has purchased 12 loans in-
  increase owners’ ability to rehabilitate   ance, two such programs, operated by         volving 3,063 units in six states. CDT has
  and modernize a property and carry         SONYMA and the New York City Resi-           also started an equity-investment pro-
  an affordable debt service — and           dential Mortgage Insurance Corporation       gram and has invested in two multifam-
  would fulfill a critical gap-financing     (REMIC), are highlighted. SONYMA’s           ily developments totaling 730 units.
  role, closing the gap between a            total multifamily insurance in force as of
  property’s cash flow and debt service      March 2001 consisted of 549 loans in-        Regarding a recommendation on needed
  and other expenses.                        volving 33,948 units. SONYMA’s mort-         relief from high real estate taxes, a de-
                                             gage-insurance program is funded             scription of New York City’s J-51 tax
• Real-estate tax policies should be         largely by a mortgage recording-tax sur-     abatement and exemption program is
  changed to provide owners with in-         charge. REMIC has insured or has com-        included in this report. From 1996 to
  centives to make capital improve-          mitted to insure 150 multifamily loans on    2000, J-51 abatements were awarded for
  ments.                                     a total of 5,268 units. The success of       improvements to 424,409 units. Also in-
                                             these programs is attributable to the use    cluded is a description of California’s
• Revisions to rent-control require-         of underwriters and lenders who are          property-tax exemption for low-income
  ments — Changes are needed to pro-         experienced in multifamily lending in        housing properties owned by nonprofit
  mote routine, expeditious processing       low- and moderate-income communities.        organizations and for limited partnerships
  of rent increases to pay for capital im-                                                in which the managing general partners
  provements. A government program           Another lending policy recommendation        are qualified nonprofit organizations.
  that provides a subsidized rehabilita-     was for a more accessible secondary
  tion loan in combination with a bank       market. Fannie Mae launched a 5-50           Information provided on each program
  loan should allow rent restructuring       Streamlined Mortgage product last year       includes how and why the program was
  immediately upon completion of con-        to respond to financing needs of proper-     created, how it is funded, its track record,
  struction so that debt, taxes, and op-     ties with five to 50 units. Twenty-one       and comments from each program’s
  erating expenses can be paid.              delegated underwriting and servicing         contact person on possible replication.
                                             lenders are approved to originate the
Noteworthy Programs                          product. Meanwhile, the FHA has intro-       The community affairs representatives
                                             duced “multifamily accelerated process-      of the Federal Reserve Banks of New
The February 2000 report included rec-       ing” (MAP) of applications for federal       York and Philadelphia trust that this in-
ommendations for lending and govern-         multifamily mortgage insurance. MAP          formation will be useful to policy-mak-
ment initiatives to improve the ability of   is being used for large-scale develop-       ers, multifamily-property owners, and
owners of five- to 20-unit properties in     ments, not smaller properties, although      lenders throughout New Jersey. For ad-
New Jersey to obtain financing for mod-      the FHA is re-evaluating its Small           ditional information, please contact Eliza-
erate rehabilitation. Fifteen noteworthy     Projects Program for possible inclusion      beth Rodriguez Jackson, assistant vice
multifamily-assistance programs that         in MAP.                                      president and community affairs officer
correspond to the recommended initia-                                                     of the Federal Reserve Bank of New
tives are listed below.                      In another secondary-market initiative,      York, at (212) 720-5921; or Dede Myers,
                                             the Community Development Trust              vice president and community affairs

Preserving Multifamily Rental Housing                                                                                               3
officer of the Federal Reserve Bank of     includes nearly 130 nonprofit organiza-        to $25,000 per unit — that could be
Philadelphia, at (215) 574-6482.           tions that own about 19,000 units; most        awarded for rental-rehabilitation projects
                                           of the units are in properties of five to      under the state’s balanced housing pro-
Regarding the recommendation for in-       20 units. The NeighborWorks® Multifam-         gram. DCA, which approved this in-
creased technical assistance to property   ily Initiative is providing five-day asset-    crease in February, has begun an inter-
owners, four programs that provide such    management clinics to staff and board          nal process to officially adopt the in-
assistance for project management are      members of 43 participating nonprofit          crease.
included: the Community Investment Cor-    organizations around the U.S.
poration (CIC) Property Management                                                        New York City’s PLP, which provides 1
Training Program, the Consortium for       Concerning a recommended government            percent 30-year loans in conjunction with
Housing and Asset Management, the          equity or subsidy initiative, five such pro-   private market-rate financing, has been
Housing and Community Development          grams are included in this report: the New     used for the rehabilitation of 44,000 units.
Network of New Jersey’s asset-man-         Jersey Neighborhood Preservation Bal-          It has been funded by city general-obli-
agement workshops, and the Neighbor-       anced Housing Program, the New York            gation bonds, Community Development
hood Reinvestment Corporation’s            City Participation Loan Program (PLP)          Block Grant and HOME funds, and a
NeighborWorks® Multifamily Initiative.     and 8-A Loan Program, the Tax-Incre-           New York State program. The 8-A Loan
CIC has provided property-management       ment Financing Neighborhood Improve-           Program, which provides loans of up to
workshops for more than 1,000 multifam-    ment Program (NIP), and the U.S. De-           $25,000 per apartment at 3 percent in-
ily-property owners and managers in the    partment of Housing and Urban                  terest for up to 30 years, has been used
Chicago area.                              Development’s now-defunct Section 312          for the rehabilitation of 103,000 units.
                                           Program.                                       The NIP provides grants to multifamily
The Housing and Community Develop-                                                        owners in two tax-increment financing
ment Network of New Jersey is orga-        In February 2001, the New Jersey De-           districts for exterior and other improve-
nizing two-day multifamily asset-man-      partment of Community Affairs (DCA)            ments.
agement workshops for its nonprofit        increased the amount of zero-interest
members. The network’s membership          forgivable loans — from $7,500 per unit

  4                                                                                            Preserving Multifamily Rental Housing
New York City Residential Mortgage Insurance
Corporation (REMIC) Housing Insurance Fund (HIF)
ORGANIZATION – New York City                   tiatives of city, state, and federal agen-   have substantial violations of the New
Residential Mortgage Insurance Corpo-          cies and financial institutions.             York City Housing Maintenance Code
ration                                                                                      unless there is a plan to correct such vio-
                                               REMIC insures up to 50 percent of the        lations.
PROGRAM TYPE – Mortgage In-                    principal amount of mortgage loans made
surance                                        for acquisition or refinancing and up to     A financial institution applies for REMIC
                                               75 percent of the principal amount of        mortgage insurance by completing an
Program Description                            mortgage loans made for rehabilitated or     application form along with required
                                               newly constructed housing. Both fixed-       documents and certifications, such as ap-
REMIC was created in 1973 to encour-           rate and adjustable-rate loans of up to      praisals and project pro formas. An ap-
age the investment of residential-mort-        40 years are eligible for REMIC insur-       plication fee of $100 or 0.1 of 1 percent
gage capital for the preservation, reha-       ance.                                        of the mortgage-loan amount, whichever
bilitation, and new construction of afford-                                                 is greater, is required. Annual premiums
able housing and to help revitalize neigh-     REMIC provides 100 percent coverage          typically range from 0.25 percent to 0.5
borhoods. It insures permanent, first-         for any loans made by authorized pub-        percent of 1 percent of the outstanding
position mortgage loans made by finan-         lic-employee pension funds and public-       principal balance of the mortgage loan.
cial institutions on multifamily and single-   benefit corporations. REMIC’s under-
family properties in New York City.            writing guidelines require 115 percent of    HIF’s reserve requirement is 20 percent
                                               debt service and have an 80 percent          of all insured and committed amounts and
REMIC was launched with capitaliza-            maximum LTV. Also, a rental property’s       100 percent of outstanding claims. It
tion of $7.5 million from the city of New      gross effective income must equal at         earns fees and premiums on its policies
York. In 1993, REMIC became a sub-             least 105 percent of total expenses, in-     and earns income from investments in
sidiary of the New York City Housing           cluding all debt-service obligations. As     the HIF and the MIF.
Development Corporation (HDC), which           part of its underwriting, REMIC exam-
assumed all of REMIC’s obligations.            ines applications for public purpose, fi-    REMIC has a full-time staff of four
REMIC’s Mortgage Insurance Fund                nancial viability, management experi-        employees, including two mortgage-in-
(MIF) insured loans from inception to          ence, and the borrower’s track record.       surance specialists. REMIC uses HDC
1993, while its HIF has insured loans                                                       engineers, inspectors, and legal staff in
from 1993 to the present.                      Eligible properties are multifamily build-   its review of applications. In 2000, the
                                               ings, owner-occupied one- to four-unit       annual cost of operating the REMIC pro-
REMIC’s mortgage-insurance programs            houses, condominium and cooperative          gram was about $623,000 (excluding
are designed to work closely with pro-         units, and mixed-use buildings in which      claims).
grams of New York City’s Department            the commercial space is less than 25
of Housing Preservation and Develop-           percent of the total square footage.         REMIC’s insurance on a property be-
ment and other affordable-housing ini-         REMIC will not insure properties that        comes effective after rehabilitation has

Preserving Multifamily Rental Housing                                                                                                5
been finished and after a certain level of   of $580,951, or 0.3 of 1 percent of the       entity should be flexible enough to allow
rental income has been achieved.             total risk-in-force, which totaled            for an expansion of activities.
                                             $186,284,886 as of March 30, 2001. Of
Track Record                                 the amount paid, 80 percent of the            Contact Information
                                             $580,951 pertained to multifamily loans.
From inception to year-end 2000,                                                           Charles A. Brass
REMIC had insured or had committed           REMIC received a rating of AA from            Executive Vice President
to insure 192 mortgage loans totaling        Standard & Poor’s in January 1999.            New York City Housing
$150.2 million. The 192 loans consisted                                                     Development Corporation
of 150 loans on multifamily properties to-                                                 110 William Street
taling 5,268 units and 42 single-family      Recommendations                               New York, NY 10038
loans totaling 64 units.                     For Replication                               (212) 227-9690
                                                                                           Fax: (212) 227-6845
Of the 192 loans, 60 percent were origi-     In designing a mortgage-insurance pro-        E-mail:
nated by the Community Preservation          gram, provision should be made for a          Web Site:
Corporation, and 19 percent were origi-      continuing source of funds, other than
nated by the Chase Community Devel-          earnings, that will increase revenues.
opment Corporation.                          Lack of funds has limited REMIC’s abil-
                                             ity to expand its insurance products and
REMIC has paid out very little in claims.    the size of loans that it insures. Legisla-
REMIC’s HIF and MIF have paid claims         tion creating a new mortgage-insurance

  6                                                                                            Preserving Multifamily Rental Housing
State of New York Mortgage Agency (SONYMA)
Mortgage Insurance Fund (MIF)
ORGANIZATION – State of New                     housing, and retail and community-ser-      • Up to 80 percent LTV on acquisition
York Mortgage Agency                            vice projects.                                and rehabilitation loans;

PROGRAM TYPE – Mortgage Insur-                  Retail and community-service facility       • Up to 90 percent loan-to-cost on new
ance                                            loans have a $5 million maximum.              construction loans;

Program Description                             The MIF provides up to 75 percent in-       • A minimum income-to-expense ratio
                                                surance on loans with commercial lend-        of 1.05 to 1.00, equal to approximately
New York State established its own MIF          ers and up to 100 percent insurance on        1.10 NOI coverage;
in 1978 to encourage reinvestment and           loans with state and local housing agen-
the rehabilitation of deteriorating neigh-      cies, industrial-development authorities,   • A minimum cash equity of 10 percent;
borhoods throughout the state. The MIF’s        and public-pension funds and public-ben-      and
powers were broadened in 1989 to in-            efit corporations.
clude projects that create affordable                                                       • A loan term of up to 33 years.
housing, are located in an economic-de-         The MIF is funded by:
velopment zone, have a public-agency                                                        In addition, an operating-deficit reserve
mortgagee, or provide a retail business         • A mortgage recording-tax surcharge        may be required subject to terms and
or community-service facility.                    of 0.25 of 1 percent, or $0.25 per        conditions as determined by the MIF.
                                                  $100, of a mortgage on real property;     Lenders must also provide independent
The MIF insures first-lien mortgages on                                                     third-party reports concerning property
multifamily and single-family loans.            • Interest earnings on reserves; and        appraisals, environmental studies, and
Loans for multifamily projects must be                                                      construction-engineering reviews of the
new construction or rehabilitation and          • A premium equal to 50 basis points,       plans, specifications, and adequacy of
must constitute at least 25 percent of total      or 0.5 of 1 percent, for each outstand-   construction budgets.
projec costs. Most of the MIF-insured             ing mortgage loan per year, and an
multifamily projects are for low- and             application fee equal to 10 basis         The MIF is a separate division of
moderate-income families.                         points.                                   SONYMA and has a professional staff
                                                                                            of 15 employees. Some other SONYMA
The MIF provides insurance through two          In the year ended March 31, 2001, the       employees provide support services to
separate accounts: the project account          surcharge amounted to $65.2 million, in-    the MIF.
and the single-family account. The              terest earnings on reserves generated
project account holds insurance policies        $44.6 million, and premiums and fees
and commitments for mortgages on mul-           totaled $11.5 million for both accounts.
tifamily housing, skilled-nursing facilities,
housing for older people, cooperative           MIF’s underwriting criteria consists of:

Preserving Multifamily Rental Housing                                                                                              7
Track Record                                 date, 113 single-family claims worth           multifamily mortgage insurance fund.
                                             about $2.6 million have been paid and          The Community Preservation Corpo-
The MIF’s total multifamily insurance in     closed since the MIF’s inception.              ration has provided excellent under-
force as of March 2001 consisted of 544                                                     writing and lending on loans insured
loans totaling $799 million and involving    Most multifamily loans in the project          by SONYMA.
34,045 units.                                account are insured for 100 percent of
                                             outstanding principal and have been sold    • To maintain the lending cycle, it is im-
The MIF’s largest lender by far was the      to the New York City Employees Re-             portant to have an investment source
Community Preservation Corporation           tirement System (NYCERS) and the               that will purchase insured multifamily
(CPC) and the Community Lending Cor-         New York State Common Retirement               loans. This role has been filled by
poration (CLC), which merged with CPC        Fund (NYSCRS).                                 NYCERS and NYSCRS.
in 1995. CPC/CLC accounted for 431
loans totaling $362 million. The New         In June 1998, Moody’s Investors Ser-        The three critical elements in the
York State Housing Finance Agency was        vice gave the MIF project account an        SONYMA program have been the MIF,
the second largest lender, with 35 loans     Aa1 rating. In February 2000, Fitch         experienced multifamily lenders, and
totaling $223 million. Chase Manhattan       IBCA, Inc., gave the MIF project ac-        NYCERS/NYSCRS. Once a process
Bank, N.A., was the next largest lender,     count an A+ rating.                         exists for insuring, rating, and selling the
with 51 loans totaling $78 million. About                                                loans, loans can be originated and sold
85 percent of MIF’s multifamily liability    Recommendations                             repeatedly.
is concentrated with these three mort-       For Replication
gagees.                                                                                  Contact Information
                                             SONYMA officials point out that:
The multifamily portfolio represents                                                     James P. Angley
about 61 percent of the total policies-in-   • A dedicated source of revenue, such       Senior Vice President and
force (PIFs) risk amount. Of 544 out-          as a recording tax, is needed to sup-     Director
standing multifamily PIFs as of March          port a large volume of insurance ac-      Mortgage Insurance Fund
31, 2001, six multifamily loans (1 per-        tivity on multifamily loans. Investment   State of New York Mortgage Agency
cent) were listed as potential claims. To      income alone would be insufficient in     641 Lexington Avenue
date, 24 multifamily claims worth about        a new fund to support a large volume      New York, NY 10022
$23 million have been paid and closed          of activity.                              (212) 688-4000, Ext. 700
since the MIF’s inception; of this amount,                                               Fax: (212) 872-0700
about 20 percent has been recovered.         • Underwriters and lenders who are ex-      E-mail:
                                               perienced in multifamily lending in       Web Site:
There were 3,222 outstanding single-           low- and moderate-income commu-
family PIFs as of March 31, 2001. To           nities are critical to the success of a

  8                                                                                           Preserving Multifamily Rental Housing
Fannie Mae 5-50 Streamlined Mortgage
ORGANIZATION – Fannie Mae                      There is a rental-unit affordability re-       Recommendations
                                               quirement — at least 50 percent of the         For Replication
PROGRAM TYPE – Conventional                    units must be rented to individuals or fami-
Financing; Secondary Market                    lies at or below 100 percent of area           When Fannie Mae’s American Dream
                                               median income.                                 commitment was announced in March
Program Description                                                                           2000, it included a stated goal for its mul-
                                               The product has no maximum or mini-            tifamily division to invest $18 billion in
The Fannie Mae 5-50 Streamlined Mort-          mum loan amount. Terms range from five         small multifamily loans (loans of $3 mil-
gage was introduced in 2000 to respond         to 30 years. The interest rate can be          lion or less, with an emphasis on five- to
to financing needs of properties with five     fixed or adjustable. The 5-50 Streamlined      50-unit properties) from 2000 to 2009.
to 50 units nationwide in both urban and       Mortgage does not incorporate forward          Fannie Mae expects to meet this goal.
rural markets. Fannie Mae data indicate        commitments.
that such properties constitute almost a                                                      In the course of developing the 5-50
third of all multifamily units and over $100   Underwriting requirements are minimum          Streamlined Mortgage product, Fannie
billion in multifamily housing stock. New      debt-service coverage of 1.25 and maxi-        Mae has learned that the key providers
York City and Philadelphia are among           mum loan-to-value of 80 percent for            of financing for small multifamily prop-
the nation’s 10 largest markets for such       fixed-rate mortgages and LTV of 77.5           erties tend to be local banks and thrifts
properties.                                    percent for adjustable-rate mortgages.         that are experts in their markets and have
                                                                                              strong relationships with their borrow-
The product features reduced documen-          The 21 lenders approved to originate the       ers.
tation and data from both the borrower         5-50 Streamlined Mortgage are all Fannie
and the lender. Title-insurance, legal, and    Mae-delegated underwriting and servic-         Contact Information
processing costs are also reduced. The         ing lenders.
product uses streamlined underwriting                                                         Timothy J. Touhey
that includes a pre-screening process.         Lenders or third parties inspect the prop-     Director
                                               erty and complete a property question-         New Jersey Partnership Office
The product is geared to experienced           naire. At closing, 125 percent of all nec-     Fannie Mae
owners/operators who have at least three       essary repairs over the next two years         One Gateway Center, 10th Floor
years’ management experience and who           are escrowed.                                  Newark, NJ 07102
live in proximity to the property being fi-                                                   (973) 848-2305
nanced. The product is oriented to well-       Track Record                                   Fax: (973) 848-2310
maintained properties that have financial                                                     E-mail:
stability and that have at least two years     Not Available                        
of operating history. These properties                                                        Web Site:
typically do not have any deferred main-                                                      multifamily/index.html
tenance. The product cannot be used for

Preserving Multifamily Rental Housing                                                                                                   9
The Community Development Trust (CDT)
ORGANIZATION – The Community sition Program. In this program, CDT in- known as OP units, that are convertible
Development Trust            vests “tax-advantaged” equity in low-, into CDT common stock.
                              moderate-, and mixed-income multifam-
PROGRAM TYPE – Equity Invest- ily properties to help preserve long-term Secondary Market Program — In this
ment; Secondary Market        affordability. CDT works with local spon- program, CDT purchases new or exist-
                              sors to restructure properties to ensure ing permanent fixed-rate multifamily
Program Description           affordability and project stabilization. mortgage loans from banks, loan con-
                                        CDT equity can be combined with tax- sortia, housing-finance agencies, and
CDT, a private real estate investment exempt financing and tax credits to pro- community development financial insti-
trust (REIT), seeks to preserve and in- vide capital for rehabilitation and increase tutions. It focuses on debt products that
crease the supply of affordable housing the financial viability of projects.         are nonconforming to other secondary
by making long-term equity investments                                         markets and bond markets because of
in multifamily properties and by provid- CDT works with experienced local non- the amount (less than $5 million), loca-
ing a secondary market for permanent profit and for-profit developers, owners, tion (inner-city or rural), configuration
fixed-rate mortgages.                    and managers on properties located (scattered-site units or urban-rehabilita-
                                          around the country. The minimum project tion projects), type (assisted living), or
The Local Initiatives Support Corpora- size is generally 100 units, although lack of rated credit enhancement. CDT
tion (LISC) provided initial seed capital smaller projects may be considered. Eli- provides forward commitments for indi-
of $1,500,000 in 1998. A LISC affiliate, gible properties can be subsidized or vidual loans originated for sale and pur-
the Local Initiatives Managed Assets nonsubsidized. Properties must have suf- chases existing loans on an individual or
Corporation (LIMAC), had purchased ficient cash flow to support CDT’s tar- portfolio basis.
housing and other community-develop- geted rate of return, which is established
ment loans around the country since on a risk-adjusted basis for each individual Loans of $250,000 to $5 million are pur-
1988. CDT was established to continue equity investment.                         chased in the program, although larger
LIMAC’s secondary-market function,                                               loans are considered. The term and am-
as well as to create a new mechanism CDT invests in properties for cash or ortization may be up to 30 years. LTV
to provide equity for affordable multi- through a tax-free exchange. CDT is may be up to 95 percent. The minimum
family projects.                          structured as an umbrella partnership real debt-coverage ratio is 1.10:1.00 for low-
                                          estate investment trust (UPREIT), which income housing tax credit (LIHTC)
In 1999, CDT raised an additional can provide certain tax deferrals to own- projects, 1.15:1.00 for non-LIHTC
$30,250,000 in equity capital through a ers who exchange ownership interests in projects, and a higher ratio for assisted-
private placement with 18 banks, insur- their properties for an interest in CDT. living projects. For loans of under $1
ance companies, and other institutional This exchange provides an attractive tax- million, CDT requires that underwriting
investors.                                deferred exit strategy to sellers of real be delegated to the lender and that the
                                          estate who would incur significant tax li- lender assume partial risk-sharing (re-
Equity Investment — Equity is pro- abilities in a cash sale. The owners re- course).
vided through CDT’s Multifamily Acqui- ceive units in an operating partnership,

10                                                                                        Preserving Multifamily Rental Housing
The interest rate for a loan or portfolio     Track Record                                  applied to HUD for an increase in rents
is based on a spread over the rate for                                                      under its mark-up-to-market program.
the 10-year U.S. Treasury note. CDT           In its Secondary Market Program, as of
uses a risk-based pricing model to de-        June 30, 2001, CDT purchased 12 loans         Recommendations
termine the spread.                           totaling $24,084,825 and involving 3,063      For Replication
                                              units in multifamily properties located in
Lenders may apply to CDT to become            six states. CDT also made commitments         Not Available
approved seller-servicers. The 11 seller-     as of June 30, 2001, on an additional nine
servicers that were approved as of Au-        loans totaling $23,227,295 and involving      Contact Information
gust 2001 include one based in the Third      1,565 units. In addition, during the sec-
Federal Reserve District — The Rein-          ond quarter of 2001 CDT issued a com-         Judd S. Levy
vestment Fund (TRF). They also include        mitment to purchase a portfolio of eight      President and Chief Executive Officer
such banks as First Union National Bank,      loans totaling about $8 million from the      The Community Development Trust
Fleet Bank, N.A., JPMorgan Chase              Wisconsin Housing and Economic De-            1350 Broadway, Suite 700
Community Development Group, and the          velopment Authority.                          New York, NY 10018
Mellon Bank Community Development                                                           (212) 271-5080
Corporation.                                  In its Equity Investment Program, CDT         Fax: (212) 271-5079
                                              invested $2.1 million in an affordable 396-   E-mail:
CDT purchased loans totaling $24.1 mil-       unit multifamily garden apartment project     Web Site:
lion for properties totaling 3,063 units as   in East Hartford, CT, in September 2000.
of June 30, 2001. This amount included        CDT acquired an 80 percent limited-part-
four loans purchased from TRF. The four       ner interest in the project through its in-
totaled $7.8 million on properties total-     vestment. In addition, during the first
ing 234 units in West Philadelphia.           quarter of 2001 CDT executed a pur-
                                              chase-and-sale agreement on a 334-unit
CDT has a professional staff of seven.        property in Lynn, MA. All of the units
Its president and chief executive officer     have Section 8 subsidies, and CDT has
is Judd S. Levy.

Preserving Multifamily Rental Housing                                                                                           11
New Jersey Neighborhood Preservation
Balanced Housing Program
ORGANIZATION — New Jersey                    deadline for balanced-housing applica-        between the actual rent charged and an
Department of Community Affairs              tions is March 15, 2002.                      affordable low-income rent as deter-
(DCA)                                                                                      mined by DCA. Low- and moderate-in-
                                             DCA makes available zero-interest loans       come multifamily-building owners can
PROGRAM TYPE — Subsidized No-                in 29 distressed urban municipalities for     obtain up to $20,000 per occupied unit.
Interest Loans                               the moderate rehabilitation of existing
                                             affordable rental units. The loans are        Owners must match balanced-housing
Program Description                          forgiven after 10 years.                      funds on a one-to-four basis. In other
                                                                                           words, an owner must raise $6,250 as
The New Jersey Neighborhood Preser-          Eligible buildings have health- and safety-   part of qualifying for a $25,000 balanced-
vation Balanced Housing Program was          code violations. Eligible costs are those     housing award. The match may come
established by the Fair Housing Act of       related to the replacement or extensive       from a financial institution or any other
1985. It is intended to assist municipali-   repair of one or more major systems           source. Owners must also agree to main-
ties in New Jersey to increase the sup-      (such as roofing, electrical, plumbing, and   tain rehabilitated units in good condition
ply of affordable housing for low- and       heating systems) and expenses related         for the 10-year term of the loan and to
moderate-income households. The pro-         to systems work (such as painting). De-       keep sufficient reserves for systems
gram is funded by a portion of the state’s   veloper fees may not be included. Eli-        maintenance and replacement.
real estate transfer tax.                    gible units may be either vacant or oc-
                                             cupied.                                       Multifamily-property owners who re-
In February 2001, DCA approved a sig-                                                      ceive balanced-housing funds must make
nificant increase — from $7,500 to           All units funded must be affordable to        a one-time certification of tenants’ in-
$25,000 — in the per unit amount that it     low- or moderate-income households,           come eligibility. Owners obtain an affi-
could award for rental-rehabilitation        and at least half of the units normally       davit in which existing tenants state their
projects. DCA has begun an internal          must be for low-income households.            income. They obtain income certifica-
process to officially adopt the increase,    Rehabilitated units subsidized with bal-      tion for new tenants from DCA or its
which was noted in the New Jersey            anced-housing funds must remain afford-       designee.
Register on September 17. As of No-          able and occupied by eligible households
vember 7, 2001, no funds had yet been        for 10 years. DCA considers a rental unit     Municipalities may undertake projects
awarded for rental-rehabilitation projects   affordable if the monthly rent, including     themselves or apply on behalf of a local
under the higher limit.                      utilities, does not exceed 30 percent of      housing authority, nonprofit organization,
                                             an eligible household’s income.               or a private developer. Municipalities
Decisions on balanced-housing applica-                                                     may apply to administer a rental-re-
tions are made each quarter; disburse-       The maximum assistance to an eligible         habilitation program within a targeted
ments are made about six to eight weeks      building is $25,000. This amount is re-       neighborhood. At least 70 percent of tar-
after the quarterly deadline. The next       duced by $50 for each dollar differential     geted neighborhoods must consist of

Preserving Multifamily Rental Housing                                                                                              13
low- or moderate-income residents.          Recommendations
Neighborhood-based programs are eli-        For Replication
gible for a maximum of $750,000 in an-
nual assistance.                            Not Available

Eligible municipalities are Asbury Park,    Contact Information
Bayonne, Bridgeton, Camden, East Or-
ange, Elizabeth, Gloucester, Hoboken,       William Rainwater
Irvington, Jersey City, Long Branch,        Administrator
Millville, Mount Holly, New Brunswick,      Division of Housing and
Newark, North Bergen, Orange,                Community Resources
Passaic, Paterson, Penns Grove, Perth       New Jersey Department of
Amboy, Phillipsburg, Plainfield,             Community Affairs
Pleasantville, Salem, Trenton, Union,       101 South Broad Street, CN 806
Vineland, and West New York, NJ.            Trenton, NJ 08625
                                            (609) 633-6285
Track Record                                Fax: (609) 292-9798
                                            E-mail: none
Since 1986, the program has provided        Web Site:
$292 million to 443 projects totaling       dhcrhome.htm
nearly 17,000 units. The projects include
both rental and for-sale housing and new
construction as well as rehabilitation.

14                                                                                Preserving Multifamily Rental Housing
New York City Participation Loan Program (PLP)
ORGANIZATION – New York City                  Borrowers must provide a minimum of 10         Corporation, and Dime Savings Bank.
Department of Housing Preservation and        percent of the project’s total cost as eq-
Development (HPD)                             uity. Acquisition or refinancing costs can     The program was originally funded with
                                              be included in the loan up to the amount of    about $3.5 million in Community Devel-
PROGRAM TYPE – Subsidized                     an independent as-is appraisal of the prop-    opment Block Grant funds. The PLP’s
Low-Interest Loans                            erty or $10,000 per unit, whichever is less.   budget rose incrementally and reached
                                              However, the majority of the funds must        about $17 million by 1980. In the mid-
Program Description                           be used for rehabilitation.                    1980s, city general-obligation bonds be-
                                                                                             gan to be used as a funding source for
The PLP provides loans for the rehabili-      The city normally provides J-51 tax            PLP after the federal government placed
tation of multifamily properties occupied     abatements and exemptions in conjunc-          some restrictions on the use of CDBG
by low- to moderate-income tenants.           tion with PLP loans.                           funds. Since that time, different federal
The city offers 1 percent mortgage loans                                                     and state programs, including a state
for up to 30 years in combination with        Upon completion of rehabilitation, all         weatherization program, have been used
loans from banks, insurance companies,        apartments become part of the city’s           to help fund PLP loans. Currently, about
and other lenders at market interest. All     rent-stabilization system, which limits the    two-thirds of the budget is funded by city
privately owned multifamily buildings in      amount of rent increases. Under the            general-obligation bonds, while one-third
New York City with at least 20 residen-       present city administration, rents of va-      is funded with HOME funds.
tial units are eligible. PLP loans are in-    cant apartments are set according to
tended for the replacement or repair of       prevailing market levels in different          Track Record
building systems and the modernization        neighborhoods.
of apartment interiors.                                                                      From PLP’s inception to April 2001, 674
                                              Borrowers obtain a commitment for con-         PLP loans were made for the rehabili-
While the PLP has been used primarily         struction and permanent financing from         tation of 44,000 units. The 44,000 include
to rehabilitate occupied multifamily build-   HPD and a participating lender. The            about 10,000 units in previously vacant
ings, vacant buildings may be eligible for    scope of work and construction costs           properties.
PLP funding. Once rehabilitated, vacant       must meet guidelines agreed to by HPD
buildings are rented to households that       and the lender. When renovation is com-        The cumulative default rate is 1.25 per-
have incomes not exceeding five times         pleted, the construction loan is converted     cent. HPD officials believe that the de-
the rent charged.                             to permanent financing. The loans are          fault and delinquency experience has
                                              then serviced on behalf of both lenders        been better than satisfactory in light of
The program was established in 1978 to        by the participating bank.                     the fact that PLP loans are riskier than
reverse the process of disinvestment in                                                      typical private mortgage financing. The
residential properties in New York City.      HPD has developed a joint application          city’s flexibility and willingness to re-
Its goal has been to encourage owners         process with several lenders, including        structure PLP loans when necessary
to invest in their properties.                the Community Preservation Corpora-            account in large part for the better-than-
                                              tion, Chase Community Development              satisfactory performance.

Preserving Multifamily Rental Housing                                                                                               15
Construction costs have averaged about       the city. At the same time, a strong real-   A mechanism to keep rents affordable
$20,000 per unit for moderate rehabili-      estate market has helped the financial       may be needed in conjunction with a pro-
tation and have ranged from $50,000 to       viability of many PLP-financed build-        gram such as PLP. This is especially true
$80,000 per unit for extensive rehabili-     ings. Also, lenders have become more         in moderate- and middle-income com-
tation. PLP will fund up to 65 percent of    comfortable with multifamily-rehabilita-     munities in which the market will not
project costs incurred by for-profit own-    tion lending in the course of working with   necessarily keep rents low.
ers and 75 percent of those incurred by      HPD and CPC.
nonprofit owners.                                                                         A program similar to PLP could be
                                             Recommendations                              funded by state sources such as a hous-
HPD’s budget includes a PLP set-aside        For Replication                              ing trust fund or federal programs such
that averages $25 million a year. This                                                    as the HOME program.
amount includes some federal HOME            An essential element in a PLP-like pro-
funds. Annual costs to operate the PLP       gram is a group of lenders who are will-     Contact Information
average about $375,000. Six full-time        ing to work with the program and the
and three part-time employees work on        public agencies involved. The Commu-         Elaine Calos
the PLP.                                     nity Preservation Corporation has            Director
                                             complemented PLP goals and policies          Rehabilitation Loan Programs
When the program started in 1978, lend-      very well.                                   New York City Department of Hous-
ers were reluctant to make rehabilita-                                                     ing Preservation and Development
tion loans in many neighborhoods of the      It is important to be aware of the need      100 Gold Street
city. Some 34,000 occupied units have        for real estate tax abatements and ex-       New York, NY 10038
been rehabilitated in such neighborhoods     emptions in trying to make the bank por-     (212) 863-6399
as Washington Heights, Harlem, and           tion of a rehabilitation loan feasible. A    Fax: (212) 863-6407
Crown Heights, converting marginal           program such as PLP would be more            E-mail:
neighborhoods to prosperous, desirable       expensive to HPD if tax abatements and       Web Site:
ones. The PLP has played an important        exemptions were unavailable.
role in revitalizing thousands of units in

16                                                                                            Preserving Multifamily Rental Housing
New York City 8-A Loan Program
ORGANIZATION – New York City                  are available only for buildings occupied      buildings. The default rate has been less
Department of Housing Preservation and        by low-income tenants — an eligibility         than 0.5 of 1 percent.
Development (HPD)                             standard that is met by determining build-
                                              ings’ average rent.                            The program has enabled owners to re-
PROGRAM TYPE – Subsidy Pro-                                                                  place obsolete building systems and has
gram                                          Projects financed by 8-A loans qualify         helped preserve an extensive number of
                                              for real estate tax abatements and ex-         housing units occupied by low-income
Program Description                           emptions through New York City’s J-51          tenants.
                                              Tax Abatement/Exemption Program.
The 8-A program provides loans to up-         The tax relief, in conjunction with post-      Recommendations
grade deteriorated building systems and       rehabilitation rent increases, helps own-      For Replication
to improve and prolong the useful life of     ers to improve cash flow and debt-ser-
multifamily properties. The program was       vice coverage on the building. Tenants,        The 8-A loan program’s mission is to
authorized in 1974 under Article 8-A of       in turn, may apply to the Section 8 Rent       preserve and extend the useful life of
the Private Housing Finance Law of the        Subsidy Program to obtain assistance to        affordable-housing units. A strong com-
State of New York.                            pay post-rehabilitation rents.                 mitment by the owner to manage prop-
                                                                                             erties well and a cooperative owner-ten-
The program, which is funded by city of       The required debt-service coverage ra-         ant relationship are necessary to achieve
New York taxes, provides loans up to          tio generally is 1.25 for most projects and    this goal.
$25,000 per apartment at 3 percent in-        1.05 for government-assisted buildings.
terest for up to 30 years. Loans may not      Loans may fund some soft costs, such           Owners are required to notify their ten-
be used to finance acquisitions, taxes,       as architects’ fees, related to the reha-      ants about plans to rehabilitate major
liens, or refinancings.                       bilitation.                                    building systems before receiving an 8-
                                                                                             A loan commitment. This requirement
Applicants must own, or must have a           Banks occasionally provide financing           contributes to responsible management
purchase contract for, the buildings for      jointly with the 8-A program on projects       and solicits meaningful and constructive
which they are seeking financing. Ap-         that exceed the program’s maximum loan         comments from the tenants. In addition,
plicants must also demonstrate an inability   amount. HPD may take a second posi-            8-A loan project managers must perform
to obtain private financing because of the    tion behind banks and other institutional      field inspections, which include random
buildings’ age, income, location, or other    lenders; otherwise, it is in first position.   on-premise surveys of tenants. These re-
factors.                                                                                     quirements have helped make the pro-
                                              Track Record                                   gram successful.
Eligible buildings must have a certificate
of occupancy and at least three units and     HPD has made over $300 million in 8-A
must be occupied and rent-stabilized or       loans since the program’s inception. The
-controlled or receive assistance through     loans have been used for the rehabilita-
a government-housing program. Loans           tion of some 103,000 units in over 3,000

Preserving Multifamily Rental Housing                                                                                              17
Contact Information

Roger Ho
8-A Loan Programs
New York City Department of Housing
 Preservation and Development
100 Gold Street
New York, NY 10038
(212) 863-6415
Fax: (212) 863-6407
E-mail: none
Web Site:

18                                    Preserving Multifamily Rental Housing
Tax-Increment Financing Neighborhood
Improvement Program, Chicago
ORGANIZATION – Community In-                    TIF projects. For example, in 2000 a lo-      strong economic growth. They have also
vestment Corporation (CIC)                      cal governmental authority participating      been somewhat controversial, with con-
                                                in a TIF might have taxing authority on       cerns about the long-term impact on tax-
PROGRAM TYPE – Subsidy; Tax-                    properties that have assessed valuations      ing agencies in the TIF districts and po-
Increment Financing (TIF)                       of $100 million with tax revenues of $15      tential displacement of low-income resi-
                                                million. In 2001, as a result of public im-   dents.
Program Description                             provements made possible by the TIF,
                                                assessed valuations may have increased        Chicago’s TIFs have generated thou-
TIF allows local governmental authori-          to $110 million, generating taxes of $16.5    sands of units of affordable rental hous-
ties to borrow against expected in-             million. The local governmental author-       ing. The city’s initial residential TIF dis-
creases in tax revenues. TIF enables            ity would continue to receive tax rev-        trict was designated in 1994 and helped
these authorities to tap future revenue         enues of $15 million in 2001 while the        develop 96 units of affordable housing
streams for 20 years or more without            $1.5 million increase would go to TIF         in the South Side neighborhood. Soon
raising local property taxes in the interim.    projects. The authority would continue        after, the city created the Bryn Mawr-
The revenues are available in the short         to receive annual tax revenues of $15         Broadway and Edgewater TIF districts,
term, rather than gradually year-by-year,       million for the duration of the TIF.          which included a residential TIF to spur
and therefore can spur significant devel-                                                     development of two hotels that were
opment in a short time.                         Since 1977, Illinois law has authorized       abandoned and scheduled for demolition.
                                                cities and towns in that state to create
TIF bonds fund public improvements or           TIFs for 23-year periods in areas that        In a creative offshoot of the TIFs, the
development subsidies, which result in          are blighted or in danger of becoming         city of Chicago’s Department of Hous-
increased property values and tax rev-          blighted. Typically, interested municipali-   ing established a Neighborhood Improve-
enues. TIF has typically been used to           ties have hired a consultant to conduct       ment Program (NIP) in 1999 when the
stimulate private investment in large           an eligibility study and develop a rede-      city’s Department of Planning created
commercial- and industrial-development          velopment plan and project budget. The        the Woodlawn and Bronzeville TIFs.
projects located in distressed geographic       municipalities often have held commu-         The NIP provides grants to owners of
areas.                                          nity meetings and, sometimes, public          single-family and multifamily properties
                                                hearings about proposed TIFs.                 for exterior and other improvements.
A baseline assessment of properties’
value is set in TIF districts, and the an-      More than 400 TIF districts have been         The grants were funded through a part-
nual tax revenues of taxing authorities         established in Illinois, including 69 in      nership involving the Chicago office of
(including school and park districts) are       Chicago. Chicago’s TIFs and the result-       the Local Initiatives Support Corporation
frozen at that base assessment level dur-       ing public improvements have been cata-       (LISC), financial institutions, and the city
ing the life of the districts while increases   lysts in redeveloping the city’s distressed   of Chicago. Seven financial institutions
in tax revenues are used for designated         areas and have contributed to the city’s      and an insurance company provided loans

Preserving Multifamily Rental Housing                                                                                                  19
totaling $2 million to the Chicago office   Multifamily owners are eligible for NIP      resulted from TIF-funded public im-
of LISC, which in turn provided the city    grants of up to $5,000 per unit with a       provements.
with a $2 million loan. The city used the   maximum of $50,000. The grants must
loan to make NIP grants available to mul-   fund exterior improvements, including        Recommendations
tifamily owners through the CIC and to      roofs, windows, entryways, porches, sid-     For Replication
single-family owners through Neighbor-      ing, and masonry. The multifamily own-
hood Housing Services of Chicago            ers must match the city grant from their     The NIP is flexible and easily accessible.
(NHSC).                                     own resources or a bank loan. Match-         Owners can certify unit eligibility simply
                                            ing funds can be used for a wide range       by providing a list of the rents paid by
The NIP is unique in that it uses TIF fu-   of rehabilitation-related activities.        tenants in their buildings, instead of hav-
ture revenues to assist present single-                                                  ing to verify tenant incomes as commonly
family and multifamily owners to make       Track Record                                 required by federally funded programs.
improvements by using some of the rev-                                                   It motivates owners to improve their
enues from future tax payments they will    The city of Chicago awarded CIC              properties by sharing the costs with them.
make. This group of property owners         $400,000 for multifamily-property own-       Those seeking to replicate the NIP will
often pays the cost of increased prop-      ers in the Woodlawn TIF and $100,000         want to retain its features of flexibility
erty taxes without any direct benefit.      for multifamily-property owners in the       and accessibility.
                                            Bronzeville TIF for the period 1999 to
Eligible for NIP grants are:                2002. In Woodlawn, CIC has made nine         CIC has found that the NIP is a very
                                            grants totaling $339,098 – $2,779 per unit   good program through which municipali-
• Owners of multifamily properties of       – for improvements to 122 units. The         ties can use small, rather than deep, sub-
  five or more units serving individuals    units were in multifamily properties rang-   sidies to promote rehabilitation and help
  and families who earn no more than        ing in size from six to 24 units. In         keep rents affordable.
  80 percent of the Chicago metropoli-      Bronzeville, CIC has made one grant to-
  tan area median income. Rents must        taling $13,056 – $1,632 per unit – for im-   TIFs can be an effective tool to fund
  not exceed 30 percent of residents’       provements to an eight-unit building. Of     near-term major public-infrastructure
  incomes for five years after grants are   CIC’s nine grants, six were accompa-         improvements by tapping future in-
  received. Applicants must have no un-     nied by CIC loans.                           creases in tax revenues. However, par-
  paid water bills, parking tickets, or                                                  ticipating governmental authorities will
  other debts to the city of Chicago.       During the same three-year period,           have static tax revenues for 20 years or
                                            NHSC provided single-family-property         more and could encounter financial dif-
• Owners of owner-occupied single-          owners in the two neighborhoods with         ficulties, for example, in paying for pub-
  family and one- to four-unit buildings    grants totaling about $1.5 million.          lic employees’ salary increases. Munici-
  who earn 120 percent or less of the                                                    palities establishing TIF districts for hous-
  Chicago metropolitan area median in-      The NIP has enabled small-property           ing purposes will want to carefully as-
  come. Applicants must own their           owners to make significant exterior im-      sess housing needs before determining
  properties for at least three years and   provements, which have increased the         program guidelines.
  have no unpaid parking tickets or fines   value of their properties. The NIP grants
  owed to the city.                         counterbalance tax increases that have

20                                                                                            Preserving Multifamily Rental Housing
Contact Information

Michael Bielawa
Vice President
Community Investment Corporation
222 South Riverside Plaza, Suite 2200
Chicago, IL 60606
(312) 258-0070
(312) 258-3725 (fax)
Web Site:

Preserving Multifamily Rental Housing   21
U.S. Department of Housing and Urban Development
(HUD) Section 312 Rehabilitation Loan Program
ORGANIZATION – U.S. Department                 The program was carried out largely as       family building was $33,500 per unit.
of Housing and Urban Development               a cooperative venture between the fed-       The maximum LTV was 90 percent. In
                                               eral government, which provided the loan     multifamily properties, net operating in-
PROGRAM TYPE – Subsidy Pro-                    funds, and local processing agencies         come had to be at least 110 percent of
gram                                           (LPAs), which were designated by lo-         total debt service. The term of a Section
                                               cal governments to operate the program.      312 rehabilitation loan could not exceed
Program Description                            LPAs assisted borrowers to prepare ap-       20 years or 75 percent of the remaining
                                               plications, screened applications, per-      useful life of the property, whichever was
Note: The HUD Section 312 Reha-                formed underwriting and creditworthi-        less.
bilitation Loan Program was an im-             ness analysis, reviewed cost estimates
portant subsidy tool in rental-housing         and conducted inspections, coordinated       Track Record
rehabilitation for more than 25 years.         the loan settlement and disbursement pro-
Although this program ended in the             cess, and generally supervised the pro-      Not Available
early 1990s, some elements of the pro-         gram at the local level. Local govern-
gram could be adapted for a state or           ments that chose not to manage the pro-      Recommendations
city rehabilitation program. For this          gram locally submitted Section 312 ap-       For Replication
reason, a fact sheet on the Section 312        plications to the regional HUD office.
program is included in this report.                                                         A former official of the city of Reading,
                                               Repayments of Section 312 loans, along       PA who packaged three Section 312 mul-
Section 312(b) of the Housing Act of 1964      with appropriations and other income,        tifamily loans observed that the program
authorized HUD to make loans to inves-         formed a revolving fund from which new       was useful for rehabilitating properties
tor-owners for rehabilitation of single-fam-   Section 312 loans were made. The pro-        occupied by tenants who had incomes be-
ily, multifamily, mixed-use, congregate        gram was used for moderate as well as        tween 80 percent and 95 percent of area
housing, and single-room occupancy prop-       extensive rehabilitation.                    median income. It provided valuable gap
erties in federally aided Community De-                                                     financing for older housing stock in rela-
velopment Block Grant and urban home-          The interest rate was based on the yield     tively stable neighborhoods, he added. He
steading areas identified by local govern-     of U.S. Treasury securities, except for      noted that Section 312’s revolving loan
ments. Owner-occupants of one- to four-        nonprofit corporations, which qualified      feature limited the amount of federal ex-
family properties also were eligible. The      for a 3.25 percent rate. Nonprofit cor-      penditures that were required. He com-
program was designed to eliminate and pre-     porations were required to work with ex-     mented that state bonds could fund reha-
vent the development of slums and blight       perienced general contractors to com-        bilitation loans that would be packaged for
and to encourage localities and property       plete rehabilitation projects.               sale on the secondary market. A lesson
owners to upgrade and preserve private                                                      learned, he said, is that paperwork should
properties.                                    The maximum loan amount for a Sec-           be minimized so that such a program may
                                               tion 312 loan on a single-family or multi-   be used easily by the borrower.

 22                                                                                                 Preserving Multifamily Rental Housing
Community Investment Corporation (CIC) Property
Management Training Program (PMTP), Chicago
ORGANIZATION – Community In-                     The PMTP was established in 1998 for           and property-management accounting. It
vestment Corporation                             part-time property owners who lacked           began offering single-evening programs
                                                 the knowledge and experience to under-         in 1999.
PROGRAM TYPE – Technical Assis-                  take needed rehabilitation. Prior to 1998,
tance (Property Management)                      assistance was provided by the Property        The PMTP has annual operating ex-
                                                 Management Resource Center, a non-             penses of about $185,000. The program
Program Description                              profit that no longer exists.                  is currently funded by grants from eight
                                                                                                banks and other institutions as well as
CIC provides financing and technical             Because of the PMTP’s popularity, CIC          $60,000 in Community Development
assistance to owners of multifamily build-       expanded the number of times that the          Block Grant funds allocated by the city
ings in Chicago and the surrounding area.        PMTP will be offered from 15 in 2000           of Chicago. PMTP’s staff consists of one
It has provided financing totaling $522          to 24 in 2001. The subsidized cost of the      full-time person (Larry McCarthy) and
million since 1984 for the rehabilitation        workshops is $85, but those referred by        two part-time assistants.
of 27,000 units that are primarily located       CIC, its investors, or community organi-
in low- and moderate-income census               zations may register for $35.                  The main workbook used in the PMTP
tracts in Chicago and the surrounding                                                           is the Residential Property Manage-
suburbs. Most of the buildings financed          Individuals who have recently bought           ment Procedures Manual. The manual
are 70 to 80 years old. Its investors pri-       properties for the first time or are think-    can be downloaded from CIC’s web site:
marily consist of about 40 Chicago-area          ing of doing so have been a prime mar- It was written by
banks.                                           ket for the PMTP. CIC requires that in-        Larry McCarthy, PMTP director, who
                                                 experienced owners who are seeking             prior to joining CIC was president of
The PMTP is designed to inform own-              CIC financing for properties of six or         RESCORP Realty and managed more
ers about how they can better market,            more units must take the PMTP. Many            than 4,000 rental units in the Chicago
manage, and maintain their rental prop-          owners who take the PMTP develop a             area.
erties. The program, which seeks to build        long-term relationship with CIC and ob-
owners’ capacity in property-manage-             tain CIC financing for their properties.       CIC has also produced The Rehab
ment and business practices, features a          Owners often learn about the PMTP by           Checklist, which helps an owner evalu-
12-hour course taken during four eve-            word-of-mouth. The city of Chicago also        ate a building’s condition, determine the
nings. The course covers such topics as          informs owners about the course.               scope of work needed, and estimate the
marketing, tenant selection, leasing, rent                                                      cost of rehabilitation. This publication,
collection, nuisance abatement, evictions,       CIC is also offering 14 one-evening pro-       which is available in English and Span-
accounting and budgeting, maintenance,           grams in 2001 on topics such as energy         ish, is included in loan-application pack-
utilities, insurance, fair housing, taxes, the   conservation, landscape design, acquisi-       ages sent to prospective borrowers.
Section 8 Rental-Assistance Program,             tion and rehabilitation, exterior-façade in-
and landlord-tenant ordinances.                  spections and maintenance, insurance,          CIC provides some technical assistance

Preserving Multifamily Rental Housing                                                                                                  23
separate from the PMTP and work-             their first building after taking the work-    CIC believes that in many areas of the
shops. CIC’s two construction special-       shop series. There has been strong in-         country there are viable opportunities for
ists review plans and visit building sites   terest in both the PMTP and the single-        financial institutions to lend on multifamily
before and during the release of CIC         evening seminars. The 14 seminars held         properties, either individually or in a
funds.                                       in 2000 were sold out.                         pooled-risk arrangement.

CIC also has a range of loan products        About 250 individuals participated in the      CIC’s experience has been that owners
and subsidies that it can offer to owners    PTMP from October 2000 to March                need easily accessible, flexible funding
who may return to CIC for project fi-        2001.                                          to respond to emergency needs for their
nancing after taking the PMTP. It pro-                                                      buildings. A fund providing small grants
vides flexible adjustable-rate and fixed-    Recommendations                                can be very cost-effective, on its own
rate financing at about 0.125 to 0.25 of     For Replication                                or in combination with loans, in meeting
1 percent below area banks’ prevailing                                                      those needs. CIC provides $5,000 grants
rates for 10- to 20-year terms. It also      In conducting the PMTP, CIC has                in combination with about one-quarter of
provides subsidies of up to $5,000 per       learned: keep the information simple and       its loans. CIC grants are not funded by
unit and up to $50,000 per building (and     brief! CIC identifies educational needs        government agencies and thus avoid the
up to $100,000 per single-room-occu-         from the owners it serves and develops         complex regulations and reporting re-
pancy building).                             sessions on those themes.                      quirements that accompany such fund-
CIC’s flex fund makes loans in excess        Larry McCarthy, CIC vice president who
of 80 percent of value in low-appraisal      oversees the PMTP, makes available edu-        Contact Information
situations in which there is reasonable      cational materials and PowerPoint presen-
debt coverage, while its initiatives fund    tations to multifamily-industry leaders in     Larry McCarthy
provides working-capital loans to con-       other states who want to start programs        Capacity Building Program Director
tractors and loans to owners for emer-       similar to the PMTP. CIC makes copies          Community Investment Corporation
gency needs. CIC is a community de-          of the Residential Property Management         222 South Riverside Plaza, Suite 2200
velopment financial institution.             Procedures Manual available for its pro-       Chicago, IL 60606
                                             duction cost of $7 per manual. CIC allows      (312) 258-0070
Track Record                                 interested organizations to remove all ref-    (312) 258-8888 (fax)
                                             erences to CIC and insert their own ma-        E-mail:
The property-management workshops            terial. CIC also provides copies upon re-      Web Site:
have provided training to more than 1,000    quest of The Rehab Checklist and is in the
owners and managers of more than             process of developing a publication on stan-
6,000 apartments in the Chicago area.        dard specifications typically required by
Many of the PMTP attendees purchased         contractors.

24                                                                                               Preserving Multifamily Rental Housing
Consortium for Housing and Asset
Management (CHAM)
ORGANIZATION – Consortium for               events and are welcome to attend fu-       Recommendations
Housing and Asset Management                ture events.                               For Replication

PROGRAM TYPE – Technical Assis-             Subjects covered in the CHAM course        Not Available
tance (Property Management)                 include development of policies, proce-
                                            dures, systems, a management plan, and     Contact Information
Program Description                         financial aspects of property manage-
                                            ment. The course is offered two or three   David Fromm
CHAM, a nonprofit organization formed       times a year at locations around the       Senior Program Director
in 1997, is a collaborative effort of the   country. CHAM also has a national con-     The Enterprise Foundation
Enterprise Foundation, the Local Initia-    ference.                                   10227 Wincopin Circle, Suite 500
tives Support Corporation, and the Neigh-                                              Columbia, MD 21044
borhood Reinvestment Corporation.           CHAM has produced the following pub-       (410) 772-2725
CHAM has a mission of expanding the         lications: Should We Accept That Prop-     Fax: (410) 964-1918
capacity of nonprofit community-based       erty?; Making A Match; The Options         E-mail:
organizations to own and manage afford-     of Property Management; and A    
able housing.                               Guide For The Management of Low-           Web Site:
                                            Income Housing Tax Credits.
CHAM has developed an asset-manage-
ment course for property managers lead-     Track Record
ing to certification as a nonprofit hous-
ing-management specialist. Although the     About 300 individuals have attended the
course is oriented to nonprofit organiza-   dozen CHAM courses that have been
tions, property managers from for-profit    conducted.
organizations have attended some past

Preserving Multifamily Rental Housing                                                                                     25
Housing and Community Development Network of
New Jersey Asset-Management Workshops
ORGANIZATION — Housing and                   The workshops are intended to provide         family development.
Community Development Network of             an understanding of key asset-manage-
New Jersey                                   ment principles and an introduction to        The network plans to expand its provi-
                                             best practices in multifamily-housing as-     sion of training and technical assistance.
PROGRAM TYPE — Technical As-                 set management. They cover such sub-          Early in 2002, it will begin to assess the
sistance (Property Management)               jects as asset-management performance         status of a representative sample of
                                             standards and reporting and monitoring,       multifamily units (about 30 percent to 50
Program Description                          contracting for services rather than pro-     percent of the 19,000 units) and their
                                             viding them internally, and maintenance       nonprofit owners. The assessment will
The Housing and Community Develop-           planning and managing. The workshops          include site visits, market analysis, and
ment Network of New Jersey is a state-       are attended by board members, execu-         reviews of financial-performance data.
wide association of more than 250 non-       tive directors, and staff members of non-
profit housing and community develop-        profit members of the network.                Track Record
ment corporations, individuals, and other
organizations involved in creating afford-   In addition to organizing the workshops,      The network held two asset-manage-
able housing and economic-development        the network has arranged for a consult-       ment workshops in September 2000 and
opportunities for low- and moderate-in-      ant to meet with senior officials and board   January 2001 that were attended by
come residents of the state.                 members of five nonprofit organizations       about 50 individuals from 30 nonprofit
                                             to help them assess their multifamily         members of the network. It held a third
The network’s membership includes            operations and portfolios before they at-     workshop in May 2001.
nearly 130 nonprofit organizations that      tend the workshops. The consultant, Enis
own about 19,000 units — mostly in prop-     Hartz, a certified property manager with      Recommendations
erties of five to 20 units. The staff and    Hartz and Associates of Exton, PA, plans      For Replication
board members of these organizations         to work with another five nonprofit or-
need extensive training and technical as-    ganizations before the end of 2001. The       Training and technical assistance are
sistance in multifamily-property manage-     network is seeking funding to expand this     needed on:
ment.                                        service.
                                                                                           • Responsibilities of multifamily-asset
The network, in conjunction with the         The network is also involved in multi-          managers;
Local Initiatives Support Corporation’s      family-housing issues through its public-
program in New Jersey, is organizing         policy and technical-assistance work. In      • Strategies for management of scat-
two-day asset-management workshops           addition, each year the network conducts        tered-site projects; and
targeted to nonprofit organizations that     a Housing Development Training Pro-
own or that are considering ownership        gram, which provides training through-        • Best practices for tenant involvement
of multifamily properties.                   out the year on multifamily and single-         in multifamily management.

26                                                                                             Preserving Multifamily Rental Housing
Contact Information

Michael Barber
Technical Assistance
 and Training Center
Housing and Community Development
 Network of New Jersey
P.O. Box 1746
Trenton, NJ 08607
(609) 393-3752
Fax: (609) 393-9016
Web Site:

Preserving Multifamily Rental Housing   27
Neighborhood Reinvestment Corporation
NeighborWorks ® Multifamily Initiative
ORGANIZATION – Neighborhood                    The initiative is intended to help partici-   Track Record
Reinvestment Corporation (NRC) and             pating NeighborWorks organizations to
the NeighborWorks Network                      better analyze the strengths and weak-        As of March 31, 2001, 43 nonprofit or-
                                               nesses of their multifamily-property man-     ganizations were participating in the ini-
PROGRAM TYPE – Technical Assis-                agement and development.                      tial phase of the NeighborWorks® Mul-
tance (Property Management)                                                                  tifamily Initiative. Six of the 43 are lo-
                                               Participating organizations generally be-     cated in the Federal Reserve Bank of
Program Description                            gin their involvement in the initiative by    New York’s District. They are Ithaca
                                               focusing on asset-management strategies       Neighborhood Housing Service, Ithaca,
NRC launched the NeighborWorks®                and work in later stages on resident-lead-    NY; Hudson River Housing, Inc.,
Multifamily Initiative in 1999 with 18 mul-    ership services and real estate develop-      Poughkeepsie, NY; Mutual Housing
tifamily providers in the NeighborWorks®       ment. Participants sign a participation       Association of Greater Hartford; CT;
Network of nonprofit community-based           agreement with NRC, receive a site visit      Rural Opportunities, Inc., Rochester,
organizations around the country.              from an NRC Multifamily Practice              NY; Steuben Churchpeople Against Pov-
                                               Group staff member, and assign certain        erty, Inc., Bath, NY; and Troy Rehabili-
The initiative seeks to:                       staff and board members to attend a five-     tation Improvement Program, Troy, NY.
                                               day asset-management clinic. Partici-         None of the 43 are in the Federal Re-
• Promote solid asset-management               pants then develop a plan of action to        serve Bank of Philadelphia’s District.
   strategies to ensure long-term              improve asset-management systems
   affordability and profitability of multi-   within 12 months after they attend the        The participants own or manage a wide
   family units, physical-plant excellence,    clinic. Participants work with consultants    range of multifamily properties totaling
   and neighborhood renewal;                   in a process designed to improve their        20,000 units. The participants’ portfolios
                                               asset-management practices.                   range from 90 to 2,000 units and are lo-
• Develop resident leadership and im-                                                        cated in urban and rural areas. Some are
   prove services to reduce the turnover       NRC provides initiative-related training      garden-apartment complexes while oth-
   of tenants, increase occupancy and          and services. An NRC consultant is as-        ers are scattered-site developments.
   collections, and enhance security; and      signed to each participant and the            Most of the properties serve low- and
                                               initiative’s full-time asset-management       moderate-income families, although
• Raise capital for real estate develop-       specialist assists in identifying property-   some are targeted to older people and
  ment and preservation, including pre-        performance needs. NRC also provides          special-needs populations.
   development capital, equity, and mort-      $15,000 grants for asset-management
   gages.                                      improvements, such as hardware or soft-       As of March 31, 2001, NRC had con-
                                               ware purchases.                               ducted three five-day asset-management
                                                                                             clinics, and all participants are using as-

28                                                                                               Preserving Multifamily Rental Housing
set-management software supplied by            which became operational in the first       An asset-management clinic would be a
NRC. The system tracks seven impor-            quarter of 2001, is based in Cleveland.     very useful service for any intermediary
tant indicators of the health of multifam-                                                 that wants to build capacity in property
ily properties: cash flow, operating ex-       Recommendations                             management among multifamily owners.
penses, debt-coverage ratio, collections       For Replication
loss, occupancy, turnover, and the aver-                                                   The initiative contains an incentive
age number of days that units are va-          The NeighborWorks Multifamily Initia-       (grants) and a requirement (data submis-
cant.                                          tive requires a time-intensive commit-      sion). The data provide a benchmark for
                                               ment from the staff and boards of direc-    measuring performance and improve-
NRC has also conducted two resident-                                               ®       ment in multifamily-portfolio manage-
                                               tors of participating NeighborWorks or-
leadership clinics, as well as classes that    ganizations. Following 40 hours of train-   ment.
prepared multifamily residents for board       ing for a team of two staff and two board
of director involvement.                       representatives, staff members commit       Contact Information
                                               an average of eight hours a month for
NRC has made grants totaling $4 mil-           initiative-related activities.              Frances Ferguson
lion to 22 participating organizations to                                                  Coordinator
assist them in acquisition, rehabilitation,    The initiative has resulted in valuable     NeighborWorks® Multifamily Initiative
or new construction of over 2,600 units.       networking among participants, who          Neighborhood Reinvestment Corporation
Meanwhile, NRC provided initial capital        have all gained sophistication on multi-    1304 Mariposa Drive, Suite 122
of about $2 million and operating sup-         family issues and learned from one an-      Austin, TX 78704
port for NeighborWorks Capital Cor-            other. Many participants have engaged       (512) 441-5441
poration, which is beginning to provide        in more detailed analysis of their prop-    Fax: 512-441-5383
participants with pre-development and          erties after they began using asset-man-    E-mail:
interim financing loans, typically at 7 per-   agement software provided through the       Web Site:
cent to 8 percent, to speed their acquisi-     initiative. This has enabled them to re-
tion of properties for preservation.           flect on the strengths and weaknesses
NeighborWorks® Capital Corporation,            of their multifamily programs.

Preserving Multifamily Rental Housing                                                                                           29
California Property-Tax Exemption
NAME OF AGENCY – California                  exemption under one of two criteria: the      financial assistance. Section 50053 of
State Board of Equalization (BOE)            property acquired, rehabilitated, devel-      the California Health and Safety Code
                                             oped, or operated is financed with tax-       provides a formula for determining “af-
PROGRAM TYPE – Property-Tax                  exempt mortgage-revenue bonds, gen-           fordable rent” for low-income house-
Exemption                                    eral-obligation bonds, or local, state or     holds, which is based on area median in-
                                             federal loans or grants; or the property      come adjusted for family size appropri-
Program Description                          owner receives federal low-income             ate for the unit. Section 50053 requires
                                             housing tax credits. In addition, the low-    that rents not exceed 30 percent of the
California provides an exemption from        income housing properties of nonprofit        allowable maximum gross income of the
property taxes for low-income housing        organizations may also qualify for ex-        household. (Allowable maximum gross
properties under Section 214, subdivi-       emption if 90 percent or more of the          income refers to income anticipated to
sions (f) and (g), of the California Rev-    occupants are low-income households           be received by all adults in the house-
enue and Taxation Code. Nonprofit or-        with rents that do not exceed prescribed      hold during a forthcoming 12-month pe-
ganizations must qualify as tax-exempt       rent levels.                                  riod.)
organizations under Section 501(c)(3) of
the Internal Revenue Code or under a         To obtain the exemption, the owner must       Legislation effective January 1, 2000,
section of the California Revenue and        provide documentation that the property       deleted a provision that permitted low-
Taxation Code. The exemption for low-        is restricted to use for low-income hous-     income housing to qualify for a tax ex-
income housing is co-administered by the     ing and that the units designated for use     emption when 20 percent or more of the
BOE and the county assessors in the 58       as low-income housing are continuously        occupants were low-income households.
counties of California.                      occupied by low-income households at          This provision, as set forth in Assembly
                                             or below prescribed rent levels. Docu-        Bill 1559 (Wiggins), was enacted after a
The property-tax exemption is available      mentation for properties of limited part-     nonprofit organization in Los Angeles
to low-income housing properties of non-     nerships can be provided in a recorded-       learned that owners of substandard
profit organizations and of limited part-    deed restriction or, regulatory agreement     housing were receiving the tax exemp-
nerships in which the managing general       with a public agency. Documentation for       tion on the basis that the residents were
partner is a qualified nonprofit organiza-   properties of nonprofit organizations can     low-income households.
tion. These properties are eligible for a    also be provided in another legal docu-
100 percent tax exemption if all the units   ment specified by the BOE. The owner          The property-tax exemption does not
are leased to qualified low-income ten-      of a low-income housing property must         include an exemption from special as-
ants at the prescribed rents. Otherwise,     certify that the funds that would have        sessments for local improvements.
a partial exemption is available for the     been necessary to pay property taxes are
portion of the property that serves low-     used to maintain the affordability of units   Track Record
income households.                           occupied by low-income households.
                                                                                           Not Available
Properties of nonprofit organizations and    Rent levels are prescribed by statute or
of limited partnerships may qualify for      by the terms of federal, state, or local

Preserving Multifamily Rental Housing                                                                                            31
Recommendations                                Contact Information
For Replication
                                               Deputy Director
The BOE recommends using federal lim-          Property Taxes Department
its on the household income of low-in-         California State Board of Equalization
come households and on the rents               P.O. Box 942879
charged to such households. Annual fil-        Sacramento, CA 94279
ings for the property-tax exemption are        Tel: (916) 445-4982
also recommended for purposes of moni-         Fax: (916) 323-8765
toring the property’s use for rent to quali-   Web Site:
fied low-income households at the pre-
scribed rent levels.

 32                                                                                     Preserving Multifamily Rental Housing
New York City J-51 Program
ORGANIZATION – New York City                  gram regulations and to administer the         more units, including rental properties,
Department of Housing Preservation and        program.                                       cooperatives, and condominiums
Development (HPD)                                                                            (multiple dwellings), and buildings con-
                                              A J-51 tax exemption temporarily ex-           taining one or two units located above
PROGRAM TYPE – Property-Tax                   empts property from an increase in as-         commercial storefronts;
Abatement and/or Exemption                    sessed value that would otherwise oc-
                                              cur as a result of significant renovation    • MCIs to buildings containing one or
Program Description                           work. (Projects involving the replace-         two units if the improvements are
                                              ment of only one or two systems gener-         carried out with a government afford-
The J-51 program provides abatements          ally do not result in an increase in as-       able-housing grant or loan program;
and/or exemptions from New York City          sessed value and therefore do not re-
property taxes to owners who perform          ceive the tax-exemption benefit.) J-51       • MCIs for moderate rehabilitation of
rehabilitation work on multifamily build-     tax exemptions are usually provided for        multiple dwellings provided that the
ings with three or more units. It provides    14 years on the increase in assessed           work exceeds $2,500 per unit, the
real estate tax relief for a range of reha-   valuation resulting from improvements,         building is at least 60 percent occu-
bilitative work, including major capital      alterations, or rehabilitation. The maxi-      pied, the owner gives notice to ten-
improvements (MCIs) and substantial           mum exemption is 34 years in cases of          ants before the improvements begin,
and moderate rehabilitation of existing       government-assisted projects.                  and the project includes at least one
vacant or occupied multifamily buildings.                                                    building-system replacement or im-
Most projects are eligible to receive J-      A J-51 tax abatement reduces existing          provement;
51 tax abatements as well as exemptions       taxes by a percentage of the cost of work
for the same work. A few one- and two-        performed. A property-tax abatement is       • Substantial rehabilitation to a building
family buildings are eligible if they re-     based on the owner’s claimed cost of           that previously was city-owned, pro-
ceive government assistance.                  improvements or the HPD-calculated             vided that the project includes re-
                                              certified reasonable cost, whichever is        placement of at least four building
The program was originally enacted in         less. The abatement is generally used at       systems and is part of a government-
1955 to encourage landlords to upgrade        8 1/3 percent over 12 years. Abatements        housing program for low- and mod-
cold-water flats by installing heat and       not used in the first 12 years can be car-     erate-income households;
hot-water systems and has since been          ried forward for up to 20 years. The
expanded to provide benefits for most         maximum abatement is 34 years for            • Landmarks projects, with work per-
MCIs, certain repairs, and conversion of      major conversion and extensive rehabili-       formed within the specifications of a
buildings to residential use. J-51 is the     tation projects.                               New York City Landmarks Preser-
original name for what is now Section                                                        vation Commission permit;
11-243 of the Administrative Code of the      J-51 benefits are available for the fol-
City of New York. This section gives          lowing types of projects:                    • Conversion of nonresidential buildings
HPD the authority to promulgate pro-                                                         to multiple dwellings;
                                              • MCIs to buildings containing three or

Preserving Multifamily Rental Housing                                                                                             33
• MCIs as part of the interim conver-       Recommendations
  sion of a building to a multiple dwell-   For Replication
  ing that is registered with the Loft
  Board; and                                Not Available

• MCIs performed as part of the con-        Contact Information
  version of buildings used for transient
  or single-room occupancy to multiple      Margot Sklar
  dwellings used for permanent occu-        Assistant to the Director of Tax-
  pancy.                                     Incentive Programs
                                            New York City Department of Housing
Track Record                                 Preservation and Development
                                            100 Gold Street
From 1996 to 2000, J-51 abatements          New York, NY 10038
were awarded for improvements to            (212) 863-5876
424,409 units. Data on J-51 exemptions      Fax: (212) 863-5899
during that period are not available.       E-mail: none
                                            Web Site:

34                                                                                Preserving Multifamily Rental Housing

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